increase their capital stock to K ** from (1 – δ) K 0 .
Our textbook model can now be used to highlight the problem of self-fulfillingcreditratings. Suppose that the economy is initially at the “good” equilibrium: private domestic investment is relatively high and the country-specific risk premium is relatively low. However, triggered by extraneous shocks, the country may switch abruptly from this “good” equilibrium to the “bad” equilibrium. Such expectations-coordination failure may happen if some political factor serves to
This first issue of Volume 51 for 2004 includes a new paper by Peter B. Clark and Jacques J. Polak, along with a tribute from the Editor to Mr. Polak in honor of his 90th birthday. This issue also launches a new featured section, "Data Issues," which will be devoted in future issues to on-going discussions of the latest in econometric and statistical tools for economists, data puzzles, and other related topics of interest to researchers.